Investing your first $1,000 is a worthy milestone. Indeed, opening up a brokerage account and directing $1,000 into the market is a watershed moment, one that will make it that much easier to make future investments. Therefore, starting off on the right foot is essential, as this will ease the path forward towards making regular contributions over the ensuing months and years. So, how should you invest your first $1,000?
You have a seemingly limitless range of options to choose from, from 401(k) plans to IRAs to individuals stocks. Understanding your objectives, your time horizons, and your appetite for risk should all factor into your decision-making.
While there are a number important considerations to make when thinking about your first investment, there also exist a fair amount of items that you should address even before you embark on your investing journey.
What to Do Before You Invest
There is wide consensus that you should try to devote as much money as you can as soon as you can into the markets. This will allow your investments to grow over time, as they compound interest over the years. However, there are a few steps to take before investing:
(1) Build a Budget: There is a balance to strike between current expenses and your longer-term goals. To do so, it is vital that you assess the particulars of your financial situation by building a budget of your income and expenses. This will allow you to understand how much you need to devote to your needs (i.e. rent, food, childcare, etc.), while also helping you to identify places where you can cut down on costs.
(2) Create an Emergency Fund: As the name suggests, an emergency fund exists to help cover the unexpected, such as an illness, accident, or job loss. Experts suggest squirreling away at least three months of living expenses. Having such a fund will prevent you from needing to pull your money out of the market or go into high-interest credit card debt.
(3) Get a Handle on Your Debt: Another important aspect is the amount and types of debt you are carrying. There is a world of difference between 30-year fixed rate mortgages and predatory credit card debts (which often compound on a daily basis). Unless you get in on the ground floor of a unicorn like Nvidia (NVDA), it is next to impossible to out-invest double-digit interest (and rapidly multiplying) credit card debt.
Long-term mortgages or public student loans are part of many people’s financial reality, and sometimes there is no way to achieve your life’s goals other than by taking on financing. As long as you are on track to repay these obligations, these regular loan installments should not stop you from putting money aside to invest. However, if you are digging yourself out of credit card debt, most advisors would agree that this should be where you place your financial focus.
What Are Your Investment Options?
Once you have laid out the groundwork, now it is time to start looking into your options and really digging into how to best invest your first $1,000.
Like outfits, culinary tastes, and really anything else in life, there is plenty of variety when it comes to investing. This is because everyone’s goals, time horizons, and desire for risk will diverge into different types of portfolios.
So, how should you invest your first $1,000? Here are a few different options:
(1) 401(k) plan matching options: 401(k) retirement accounts are only offered by workplaces. Some companies offer an additional employee matching perks up to a certain percentage of your contribution. For instance, if they offer a 5% match and you allocate 5% of your salary, you will effectively double your contributions (subject to vesting requirements, which differ by company). The opportunity to automatically double your money, guaranteed, is too good to pass up, so if you have this option you should definitely contribute up to the matching limit if you can.
(2) Individual Retirement Account (IRAs): An IRA is a tax-advantaged investment vehicle that will help you save for retirement. It comes in Roth and Traditional iterations, the differences being that when the monies are taxed (Roth uses after-tax income, Traditional uses pre-tax income). You will open it with a broker that offers IRAs, and this individual will help you divide your portfolio into various funds based on the level of risk you are comfortable .
Both 401(k) plans and IRAs allow you to immediately diversify, by investing in funds comprised of a number of different equities, industries, and even government bonds, depending on your desired level of risk.
(3) Investing in individual stocks: You can also open up a brokerage account, and begin purchasing individual stocks. With seemingly unlimited choices, it might be easy to get confused. You could go with big name companies like Apple (AAPL) or Microsoft (MSFT), or purchase lessor known ones. The key here is to do your research, diversify your portfolio, and be consistent. You never want to put all your eggs in one basket, risking losing everything if the company you have invested in tanks.
Markets also go in both directions, which is what makes dollar-cost averaging an appealing strategy for many to lessen their risk exposure. By following this approach, you will constantly invest the same sum of money into your investments at regular intervals, which will allow your investments to “average” out any volatility in the markets over time.
TipRanks offers a number of tools to help understand how companies are functioning and their prospects for the future, allowing you to make data-driven decisions.
Conclusion: Stick With It
One of the most sage pieces of advice in investing is to remain in it for the long haul, letting the magic of compound interest work for you. While the first $1,000 you invest is a seminal landmark, the continued devotion of funds into your investments is just as important.
In other words, it is the regular investing of money that will lead to long-term riches. Living well under your means will give you the ability to do this, which is why sound investing is synonymous with healthy financial hygiene.
The initial $1,000 is important, but it is the additional contributions you make after taking this first step that can make you wealthy.
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